Rising business costs in Singapore may be passed on to consumers

Rising business costs may be passed on to consumers

SINGAPORE — As business costs continue to rise, trade associations are warning that companies may be forced to increase prices to maintain their profitability.

BY LEE YEN NEE –

4 HOURS 43 MIN AGO

SINGAPORE — As business costs continue to rise, trade associations are warning that companies may be forced to increase prices to maintain their profitability. Singapore Business Federation Chief Executive Ho Meng Kit said pressure on the business community to maintain profitability in the face of higher costs is intensifying: “Even as Singapore expects economic growth for the full year in 2013, businesses continue to face cost adjustments … there are also small and medium enterprises (SMEs) that find it harder to borrow, due to their lower profitability amid the current tougher environment. “With this in mind, it is inevitable that consumers may expect to see some costs being passed on.”The warning comes in the wake of the Monetary Authority of Singapore and the Ministry of Trade and Industry flagging last week the risk of higher core inflation as a result of rising pressure on labour, land and transport costs.

Mr Thomas Fernandez, Vice-President (Communications) of the Association of Small and Medium Enterprises, said rising costs have had a “detrimental” effect on the bottom line of many SMEs, which make up more than 90 per cent of all businesses in Singapore.

“Although this might not be sustainable in the long term, some companies might pass this additional cost on to consumers,” he said, adding that some businesses may resist raising prices out of fear that they will lose their competitiveness.

Businesses TODAY spoke to said that, while managing rising costs has proven to be a major headache, the bigger challenge is to remain competitive.

Mr Vincent Tan, Managing Director of food and beverage business Select Group, which manages restaurants like Peach Garden and Lerk Thai, said increasing prices would be a last resort.

“Singapore is a very competitive market — you can raise your prices, but consumers still have so many choices. So that’s the last thing we will do, unless we have tried everything else — cut costs, streamline processes, reduce manpower — and we still can’t survive,” Mr Tan said.

For civil engineering firm Samwoh, the increase in operational expenditure will inevitably be transferred to its customers, as the company has to reflect higher costs when competing for tenders.

“Labour is much more expensive now: Each foreign worker now costs S$1,800 to S$2,000 after taking into account salary, levy, accommodation and insurance. Transport costs have also increased: One lorry is now 30 to 40 per cent more expensive compared with a few years ago because COE (Certificate of Entitlement) prices are so high,” said Chief Operating Officer Ho Nyok Yong.

“All these affect margins and eventually have to be passed on to customers. When we tender for new jobs, we have to factor all these in,” Dr Ho said.

Both Select and Samwoh said they have used government grants and schemes to upgrade their operations to become more productive and reduced their reliance on manpower in order to remain competitive.

Steps that Select has taken include implementing an e-ordering and e-payment system. It also now uses a central kitchen to handle all the cooking, saving on time and manpower.

Samwoh, on the other hand, has invested in a research and development team to come up with innovations that can improve efficiency.

“We have applied some of the innovations and upgraded our machinery with more functions. One example is that we used to need eight people to pave the road. Now we need only six to get the same work done,” Dr Ho noted.

But the Singapore Chinese Chamber of Commerce & Industry (SCCCI) said more can be done to help businesses in Singapore, especially in managing manpower costs that are rising due to the tight labour market and higher foreign worker levies.

SCCCI President Thomas Chua said: “The government can consider allowing companies to retain their existing foreign workers who have performed well when their employment passes or work permits are due for renewal. This would help businesses save on the costs incurred to find and retain suitable candidates.”

“The implementation of the Fair Consideration Framework should be simple and straightforward so that businesses will not have to deal with additional compliance costs as well,” he suggested.